Govt loses "hundreds of millions" of dollars building public flats: Our Singapore Conversation on Housing

By Imelda Saad, Channel NewsAsia, 26 Apr 2013

National Development Minister Khaw Boon Wan has said the government loses "hundreds of millions" of dollars when constructing public flats.

He made the point on Thursday night at a dialogue session on housing issues.

This comes amid calls from some quarters for land costs to be taken out from the pricing of public flats to make them more affordable.

Mr Khaw also hinted at several other changes to come, such as subsidies for executive condominiums.

During the national conversation session on housing issues, many were concerned about the affordability of home prices.

Evalyn Khoo, a mother of two, said: “I'm concerned about the home asset value. I'm also concerned about how the younger generation can actually afford a house for themselves in the future."

Participant Philip Lee said: “I think in the past three years or so, there has been more anxiety in the market because even Singaporeans couldn't get properties through the Build-To-Order (scheme) and they have to resort to the resale market and I think if there is sufficient supply channelled to BTO, we may see more happy Singaporeans and possibly less demand in the resale market and hopefully the prices will be within range."

With regard to calls for price of new Build-To-Order (BTO) flats to be de-linked from land costs, Mr Khaw said it may be politically easy to say land is free because it belongs to everybody, but that is not the case.

He said the price of land is tied to acquisition costs, reclamation and the building of infrastructure around it.

Mr Khaw said: "You need to acquire a piece of land; you need to reclaim a piece of land. All those costs money to taxpayers and we are just trustees of taxpayers and those costs are to be accounted for. And even when you have got that land prepared, land is only valuable when we invest in infrastructure, roads, MRT... And all those costs billions of dollars. So to say that land cost is a pittance and therefore should be excluded from total construction costs… I myself think it is not quite an appropriate argument.”

He also revealed that the Housing and Development Board, which is the developer for public housing, is losing money for every flat it sells.

He said: “Every year, hundreds of millions of dollars of losses were incurred by the HDB and that's why MOF (Ministry of Finance) has to give the HDB an annual grant, otherwise the HDB will be in the red. It cannot be forever in the red, because there's no way it can make money. Because every unit that we sell, we lose money, HDB loses money. The accounting for the HDB is deficit accounting. So if you incur a S$300-million loss, there is a grant of S$300 million that covers it. That is how we operate the HDB.

“Let us not perpetuate this talk about HDB is making money out of building houses because if it was so simple, life would be straightforward, but that's not the case.”

The HDB pays market rate for its land and construction costs. When it prices flats below market rate, it incurs a housing deficit.

A recent report said the deficit is now in the region of about S$1 billion a year, including other costs such as upgrading.

The National Development Ministry told Channel NewsAsia: "The cost of building HDB flats includes the cost of land, design, construction, financing and other project-related costs. It varies from project to project and year to year. Averaging over the past three years, the Home Ownership Programme costs HDB S$874 million per year."

Mr Khaw added that the government has to offer more subsidies with its ramped-up flat supply.

One area where subsidies are being reviewed is that for executive condominiums (ECs), which cater to Singaporeans who can afford more than an HDB flat, but find private property out of their reach.

The current household income ceiling for executive condominiums is S$12,000.

Mr Khaw said: “There is this sense of inequity here that the lower-income group is getting lower subsidies than somebody who is earning S$12,000, so something is wrong somewhere and therefore I think we cannot carry on the EC in this current mode."

Mr Khaw also said he is confident that he can bring down the price of new flats in non-mature estates to four times the annual median salary of a buyer - down 30 per cent from the current 5.5 times. He is wary of some "transitional problems".

He said there needs to be "distinct differentiation" between the cheaper new flats and those built earlier.

Mr Khaw said both the MND and HDB will need to sort out this issue over the next few months.

He said: "I am fairly confident of being able to do it but some groups already anticipate transitional problems, which is what I got to sort out. If yesterday you bought (a flat) at five and half years' salary and tomorrow HDB announces a new pricing package, which is only (priced at) four years’ salary, you are going to cry 'blue murder' right?

“Therefore, I think we should not be prevented from offering a new pricing model but obviously there must be a distinct differentiation between the two products to explain why one is five and a half years and the one is four years."

The national conversation session is the second in a series of about 10 dialogue sessions on housing issues. Participants were first broken up in small groups of six and then came together in a larger group where the conversation continued. The aim is to gather feedback from Singaporeans to shape future housing policies. 

The topic of affordability will be further discussed at a future Our Singapore Conversation discussion.

Details can be found on www.mnd.gov.sg/HomeSweetHome 

Khaw hints at changes to EC scheme
By Rachel Chang, The Straits Times, 27 Apr 2013

THE executive condominium (EC) scheme cannot carry on in its current form, said National Development Minister Khaw Boon Wan, hinting that there may be changes afoot.

At a session of an Our Singapore Conversation on housing on Thursday, he noted the "sense of inequity" at the profit that EC buyers can make on their units.

First-time buyers of both ECs and Build-To-Order (BTO) flats get grants from the Housing Board, the size of which depends on their incomes. This ranges from $10,000 to $30,000 for EC buyers, and up to $60,000 for BTO buyers earning less than $1,500 a month.

But EC owners make more profit upon resale than the average flat owner, noted Mr Khaw.

"Because their upside in the current property market is so big, the subsidy they earn getting an EC compared to the subsidy that a lower-income family, through a three-room, four-room or five-room BTO... there's a substantial gap," he said.

"So there's this sense of inequity here, that the lower-income is getting less subsidy than somebody who is earning $12,000," he said, referring to the income ceiling for EC buyers. BTO buyers face a lower ceiling of $10,000.

ECs are meant for the "sandwiched" class of buyers who make too much to be eligible for BTO flats but still find private property out of reach.

This state of affairs, said Mr Khaw, goes against the principle of progressive HDB subsidies, where the lower-income should receive more. "So something is wrong somewhere," he said. "And therefore I think we cannot carry on the EC in this current (form)."

ECs are marketed and built by private developers rather than HDB. Buyers are subject to a minimum occupation period of five years, but after 10 years, ECs become private property and can be sold to foreigners.

According to data from the Singapore Real Estate Exchange, four-room flats in Chua Chu Kang appreciate faster than EC units from The Quintet - about 200 per cent compared to 90 per cent for the EC over seven years.

But EC buyers have made more profit in absolute terms: The median price of units in The Quintet rose from $478,333 in 2005 to $905,000 last year. In comparison, that of HDB four-room flats rose from $136,000 to $420,250 in the same period.

HDB resale transactions at record low
The Resale Price Index (RPI) for HDB flats rose 1.3 per cent to 205.5 in the first quarter of 2013.
By Olivia Siong, Channel NewsAsia, 26 Apr 2013

The Resale Price Index (RPI) for HDB flats rose 1.3 per cent from 202.9 in the fourth quarter (Q4) of 2012 to 205.5 in the first quarter (Q1) of 2013.

According to data from the Housing & Development Board (HDB), resale transactions fell 23 per cent from 5,631 cases in Q4 of 2012 to 4,335 cases in Q1 2013.

Bukit Merah town saw the highest median resale prices for 3-room and 5-room flats, at S$398,000 and S$800,000 respectively.

A 4-room flat in Queenstown was sold at S$679,000, the highest median resale price for that flat type.

Toa Payoh town saw the highest median cash-over-valuation (COV) for 3-room and 5-room flats, at S$32,000 and S$75,000 respectively.

The highest median COV for a 4-room flat was recorded in Queenstown at S$69,000.

Based on PropNex data, the median overall COV for the first quarter of this year was S$32,000, 3 per cent down from S$33,000 in the preceding three months.

Key executive officer of ERA Realty Network, Eugene Lim said with COVs decreasing, more homebuyers may enter the HDB resale market.

Second-time homebuyers will also find it more affordable as they need not endure the long wait and numerous unsuccessful ballots for Build-To-Order (BTO) units.

HDB said 4,850 BTO flats will be on sale in the May 2013 BTO exercise.

These BTO flats will be in Choa Chu Kang, Hougang, Jurong West, Sembawang, and Woodlands.

An additional 3,000 flats will be offered in a concurrent Sale of Balance Flats exercise.

With regard to the rental market, HDB said subletting transactions rose 15 per cent from 6,443 cases in Q4 2012 to 7,410 cases in Q1 2013.

The total number of HDB flats approved for subletting also rose 1.8 per cent from 43,508 units in Q4 2012 to 44,274 units in Q1 2013.

The highest median subletting rent for a 3-room flat was S$2,450, recorded in the Central area.

Bukit Merah town saw the highest median subletting rent for a 4-room flat at S$2,970 and S$3,300 for a 5-room flat.

Pasir Ris and Tampines towns registered the highest median subletting rent for executive flats at S$2,900.

Director of Chris International, Chris Koh said: "Those who want to change their flat or buy a (new) flat, are affected sometimes by the financing rules. Then we also have a group of people who today don't want to sell their flat because they know if they sell their flat and buy a private property, if they come back and buy a HDB flat, we have a ruling (that took place) in August 2010 that states that you have to sell your private property in six months.

"So these people are keeping their HDB flat and also keeping their private (property). The majority of HDB owners - if you speak to them and ask them, 'do you want to sell your flat or rent it out?', their answer will be, 'if I can rent it out, why not?'"

OUR SINGAPORE CONVERSATION: HOUSING
Participants want 'more home, less asset'
Changes suggested by one group will meet resistance from others: Khaw
By Rachel Chang, The Straits Times, 27 Apr 2013

MOST of the Singaporeans who gathered to debate the future of the Housing Board (HDB) on Thursday night wanted the rules tightened to make flats "more home, less asset".

They felt that the priority should be to meet the housing needs of Singaporeans as opposed to seeing flats as appreciating assets.

At the Our Singapore Conversation (OSC) dialogue on housing, which focused on home ownership, some participants also argued that flats should not be sub-let liberally. They should not be owned either by those who can afford private properties.

Several participants at the dialogue, held at the National Library building, added that permanent residents and new citizens should be subject to different rules than born-and-bred citizens, like a longer minimum occupation period in their flats.

Almost all did not want to see Singapore's home ownership rate fall below 80 or 90 per cent.

National Development Minister Khaw Boon Wan, who roamed the room listening in before addressing the participants, said that he was glad to see the goal of home ownership reaffirmed as a "desirable target".

"I don't think we want to walk backwards to have a day where only 20 per cent own homes and the rest are renting."

But the changes the participants advocated would come at substantial cost to other segments of Singaporeans, he said, and any shift in current HDB rules will meet resistance from those on "the other side of the coin".

He pointed specifically to retirees as a group who have "built their assets over the years".

Any changes to sub-letting, ownership or resale rules could prevent them from monetising their flats and therefore "spoil their retirement plans".

Ms Evalyn Khoo, 32, who works in the insurance industry, said that she was surprised that her fellow participants were largely calling for tighter rules. She suggested that the profiles of the 40 attendees skewed towards those worried about getting a foot in the property market. These included younger buyers or older ones thinking of their children.

She also pointed out that disallowing dual ownership of an HDB flat and a private property cannot be implemented immediately as it is unfair to make someone sell their property even during a downmarket.

But Singapore Management University economics student Tan Pei Yuan, 25, felt the session told him that "there is a consensus on housing and that is to move towards inclusiveness and affordable homes for all".

When talking to participants, Mr Khaw said some ideas were not feasible.

These included removing land costs from HDB's pricing equation, imposing a minimum occupation period after buying a resale flat and that the Government should buy back all flats at market price and "start again".

Of the third suggestion, he said that "no government can afford that, including the Singapore Government".

"Let us not perpetuate this thought that HDB is making money," he emphasised, and noted that its home ownership programme is perpetually in the red as it sells new flats below cost.

This deficit, he said, was currently growing due to his move to de-link build-to-order flat prices from the rising resale market in 2011.

"It will run into billions of dollars," he cautioned.

The next OSC session will be on types of public housing and will be held on May 8.



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